The Ever-Important Role of Skills in the Spending Review  

On Wednesday, Rachel Reeves delivered her multi-year Spending Review in the House of Commons, outlining departmental budgets from 2026-27 to 2028-29 and capital investment through to 2029-30. As expected, the largest funding increases went to the Department of Health and Social Care and the Ministry of Defence. But underpinning nearly every major announcement was a recurring theme: the UK’s pressing need for skills.  

While the Department for Education (DfE) saw a modest uplift in day-to-day funding, the real story for further and higher education lies beyond the education section of the Review. Skills investment is now central to national ambitions across infrastructure, health, defence, and tech. Yet questions remain over whether education and training systems are sufficiently resourced to deliver.  

What Did the Education Section Tell Us About FE, Skills, and Education?  

Within the DfE’s settlement, further education and skills received a promising uplift, with a £1.2 billion annual increase in funding. This is expected to support over 1.3 million 16–19-year-olds to access high-quality training and upskilling programmes. As Reeves stated, the aim is to ensure their “potential, their drive and their ambition is frustrated no longer.”  

While this recognition of skills as a driver of economic growth is welcome, the Review left several questions unanswered. There was little detail on adult education or lifelong learning, and no mention of capital investment or targeted measures to address the FE teacher recruitment and retention crisis. Further clarity is expected in the forthcoming Post-16 Education and Skills White Paper, due later this year.  

In contrast to schools and colleges, higher education institutions are likely to be disappointed. Although universities may benefit indirectly from increased government R&D funding - rising to £22.5 billion annually by 2029–30 - this does not constitute direct institutional support. Meanwhile, providers continue to grapple with falling international student numbers, frozen tuition fees, and rising operational costs.  

The Spending Review also hinted at the introduction of an international student levy, first proposed in the immigration white paper. While the intention is to reinvest revenue into higher education and skills, the mechanism remains unclear, with guidance promised “in due course.”  

This uncertainty comes at a time of acute financial strain. According to the Office for Students’ latest financial health check, 43% of registered institutions expect to be in deficit by the end of July - despite cost-cutting measures such as staff reductions, course closures, deferred maintenance, and asset sales.  

Expanding the NHS Through Domestic Training  

The full story of skills in this Spending Review can’t be found in the education section alone.  

To understand how critical training and workforce development have become to the government’s wider ambitions, we need to look beyond the DfE. Health was arguably the biggest winner in the Review, with a £30 billion annual increase to the DHSC and a 3% real-terms rise for the NHS. Once again, domestic training was framed as the foundation of NHS renewal, with Reeves pledging investment to “support the training of thousands more GPs, delivering millions more appointments a year.”  

This aligns with the 2023 NHS Long Term Workforce Plan, which committed to doubling education and training places by 2030-31 across almost all roles. However, the feasibility of this growth depends on collaboration with the HE sector. With universities facing financial uncertainty and clinical placement capacity under strain, delivering on these ambitions will be challenging.  

Moreover, proposed cuts to Level 7 apprenticeship funding for learners aged 21 and over could undermine training routes into key health roles like nursing and midwifery. Aligning education funding with workforce goals will be essential for success.  

Training for "Warfighting Readiness"  

The Review reaffirmed Labour’s commitment to defence, allocating £11 billion for defence and £600 million for national security - underpinned by the recently published Strategic Defence Review (SDR).  

The SDR set out a skills-focused agenda to modernise defence capabilities. This includes:  

• Developing a career education pathway for the Whole Force by 2026; 
• Creating new entry pathways, including short-term service models such as ‘gap year’ schemes; 
• A directive for the MoD to work with DfE, DSIT, UKRI, and universities to invest in STEM and other specialist skills.  

These reforms show a clear intent to strengthen the skills pipeline for defence innovation, cyber security, and emerging technologies.  

Bridging the Skills Gap for Infrastructure  

Beyond health and defence, a key theme across the Review was the drive for large-scale infrastructure development. In housing, £39 billion was allocated for new social homes, aligning with the pledge to build 1.5 million homes by the end of this Parliament. Another £13.2 billion will fund home insulation upgrades, while £8.3 billion is allocated to Great British Energy for home-grown power.  

Despite a reduced day-to-day transport budget, Labour confirmed major capital investments in rail and public transport - including a new Liverpool-to-Manchester line and £15.6 billion for local transport outside London.  

But without a skilled construction workforce, these projects may stall. The Construction Industry Training Board (CITB) estimates the UK will need over 250,000 additional workers by 2028 to meet the housing target alone. Investment in further education and apprenticeships will be critical to delivering these ambitions on time and at scale.  

Scaling Digital Skills for the Future  

Productivity through tech and AI was another theme cutting across departments. Following the Government’s AI Opportunities Plan, the government pledged £2 billion for AI development through to 2029–30, with DSIT allocated £1.2 billion over the next three years.  

This comes alongside the launch of the £187 million TechFirst programme to embed digital skills and AI training across schools, colleges, and community settings. It aims to train people of all ages and backgrounds for future tech careers.  

However, ambitions for AI readiness cannot be achieved without major investment in teacher CPD and curriculum development. As universities continue to debate the role of AI in degree programmes, and colleges face staff shortages and tight budgets, it is not yet clear how providers will upskill their own workforces to deliver these changes.  

Skills and the Fallout from Migration Reform  

In contrast to other departments, the Foreign, Commonwealth and Development Office saw a near 7% real-terms cut to its budget - consistent with the government's plans to reduce migration and “take back control of our borders.” This follows the May immigration white paper, which signalled a shift away from reliance on overseas workers.  

But with net migration projected to fall, the government’s ambitions in sectors like health, defence, construction, and energy will depend even more on growing domestic skills. This adds further urgency to the task of expanding and supporting the UK's education and training infrastructure.  

Conclusion: Delivery Depends on Skills  

Across every priority area in the Spending Review- from NHS reform to housebuilding, defence modernisation to digital transformation - the need for skills takes centre stage. But while further education and skills received a welcome boost, the funding allocated may fall short of what is required to deliver on these cross-sector ambitions.  

Higher education faces an increasingly precarious financial outlook. Colleges and providers are still waiting for clarity on capital investment, adult learning, and workforce planning. The potential impact of immigration reform only adds to the urgency.  

The government’s Post-16 Education and Skills White Paper, due later this year, will hopefully provide greater clarity - alongside the forthcoming Industrial Strategy, Infrastructure Strategy, and updates to the AI Opportunities Plan. These all need to work in concert to ensure the UK has the skills system it needs to deliver on Labour’s ambitious pledges.